Cryptocurrency is a digital currency that is used as a medium of exchange. It has grown in popularity during 2017 and 2018 which is a huge comparison to when the world had its first taste of digital currency back in 2009. Nowadays, many people who are intrigued by the volatility and the huge returns on investment are rushing towards cryptocurrency. It is not too far-fetched to consider the possibility that it could drown the power of central banks over time.
Central Banks Vs Cryptocurrency
A central bank is responsible for managing the currency of a country. It ensures that the currency is in supply and well managed as well as the interest rate of the currency. In addition to that, the central bank is also responsible for regulating every commercial bank within the country. The role of the central bank in a country is so important because it helps maintain the economic stability of the country. It also shapes the financial stability and sovereignty.
The reason why central banks are still in existence is because they ensure financial stability by keeping the country’s currency away from all sort of forgeries that would make its citizens lose faith in the currency. This lack of confidence disrupts the financial and economic development of the country.
Now, with this understanding, it is clear why many predict that cryptocurrency has the potential to eliminate central banks. For the benefit of those who do not fully how Cryptocurrency works, essentially, it is a nationless and borderless asset class. The foremost cryptocurrency was Bitcoin which is a monetary unit on its own without ties to any national entity whatsoever. Bitcoin is simply backed by the belief in blockchain as against any government in particular. Government sanctions have been found to be utterly useless against this coin since its operation is computer-based. So people all over the world simply go online to carry out business transactions through this virtual currency. Many feel that this popularity of cryptocurrencies may potentially eliminate the role of central banks. Here are 5 reasons why we think cryptocurrency has the capacity to do just that.
1. The similarities between cryptocurrency and equities
The price of cryptocurrency is largely determined by how it is supplied, in demand and how it is traded across different exchange platforms. Returns on investment, for those who treat cryptocurrency as their investment portfolio, has been impressive. According to IcoAlerts, Bitcoin investors experienced an appropriate of 1500% return on investment (just in 2017). Investments in Ethereum also experienced over 10,000% return on investment. These were not the only cryptocurrencies that offered higher and impressive returns on investment. For anyone driven by figures, this is more than enough evidence to risk investing in cryptocurrency rather than the interest that equities offer. With cryptocurrency offering more on investment returns, it could drive many away from investing in equities knowing fully well that both are volatile.
2. Transparency
Central banks are expected to operate very transparently regarding policies, strategies, and assessment of the country’s currency. But how often are these institutions transparent to the general public in these aspects? As a result of the increasing independence of the institution saddled with the responsibility of a country’s currency, many have cried out for a more “greater” transparency. Many see this as the most important and effective move for portraying true democracy, trustworthiness, accountability and data transparency. With cryptocurrency, data transparency, integrity and security is the premise upon which cryptocurrency was built. The need to have people do whatever they want with their money whenever without anyone questioning their decisions was the foundation upon which this digital currency was built. If central banks fail to provide this level of transparency that cryptocurrency offers, many seeking and clamoring for such might turn to cryptocurrency as their safe haven.
3. The elimination of printing costs
Quite a lot of funding goes into printing money that circulates within an economy. For various reasons, the central bank might feel the need to print more notes or coins to pump more money in circulation. To curb inflation, for example, the central bank may withdraw a certain amount of money in circulation. With cryptocurrency, this is completely absent. There is no note or coin to print, thereby saving the nation from unnecessary expenses incurred when printing or reprinting notes. Central banks also have to deal with the issues of fraudsters who forge notes but this is definitely not something that exchanges in the cryptocurrency world would be dealing with.
4. Monopoly of power
With one institution conferred the power to manage the currency of a nation, the monopoly of that power is definitely unavoidable. Central Banks hold a lot of power to control the economy of a nation. This is something the many are not so comfortable with especially with central banks operating independently. One single action by this institution could completely cripple the economy of a nation and the effect on the citizens is always something that takes a long time to get over. This, however, is not the case with cryptocurrency. While cryptocurrency is in a world of its own, it is not solely controlled by anyone or any institution. In fact, with cryptocurrencies, the monopoly of power to control the economy is definitely out of the question because there are numerous cryptocurrencies and exchanges where people buy and trade their coins. Rather than monopolizing monetary policies or activities, these digital currencies are likely to help improve on the failures of central banks in taking decisions that could cripple the economy.
5. The inefficiencies of payment systems
While the central banks cannot be entirely blamed for all inefficiencies in payments, they are however responsible for creating the kind of policies that these exchanges and banks adhere to. This is definitely something that the cryptocurrency world does not experience. In fact, cryptocurrencies are praised for their efficiency of transactions done online. If anyone transacting with cryptocurrencies were to have issues, oftentimes it is simply due to either using the wrong key or sending to the wrong wallet.
